Gold Standard Not Attractive

Paul Krugman observes how life under a gold standard is not pleasant:

Anyway, one alleged fact I keep hearing is that recessions were short and shallow under the gold standard. I don’t know where that’s coming from, but it just ain’t so. The data aren’t as good for the pre-1933 era as they are now, but for what it’s worth they suggest that there were a number of nasty, prolonged slumps under the gold standard. In particular, the Panic of 1893 was associated with a double-dip recession that left industrial production depressed and unemployment high for more than 5 years. Here’s the estimated unemployment rate from Historical Statistics Millennial Edition:

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That’s a pretty ugly, prolonged slump. Gold is no panacea.

It was these persistent high unemployment rates under the deflationary gold standard that led to William Jennings Bryan’s famous “Cross of Gold” Speech.  I wonder why there’s apparently no William Jennings Bryan today – our unemployment is worse and will likely be as long or longer.

“I Am Egyptian..”

I received the following email from Talaat Pasha, Ph.D., a fellow professor.  I think it rather concisely explains why the Egyptian people have arisen to change their government.

Dear American fellow people,I am Egyptian.

  • I have been ruled by the state of emergency for thirty (30)years, yes 30 years.
  • 40% of my people live under poverty line.
  • 30% to 40% of my people are illiterate.
  • 96% of the members of the Egyptian parliament are from the National Democratic Party ( Mubarak’s party) because of rigging the ballots.
  • No free and transparent elections (legislative or presidential) were ever done.
  • The average daily income for my people is $3.
  • No health insurance is provided to the have-nots.
  • Universities in my Egypt are not independent and are run by the police.
  • My people do not feel secure to practice their basic human rights without being harassed by the police.
  • There is a secret detective for every 5 people.
  • 10 percentage possess 90 percentage of Egypt’s wealth.
  • Mubarak’s wealth exceeds 40 billion $$$.
  • Average daily wage of university graduates is $4.00.
  • My people are out in the streets today to peacefully get their rights. But the police started using force (tear gas, plastic and live bullets) with totally civilian people.
  • Witnesses say that it is the (secret) police that set fire in public buildings and police stations.
  • My people are so civil that they are now out forming human fences to protect public and private properties.
  • My family reported that the Egyptian youth are now on guard of the neighborhood and they (the family) can taste the feeling of security for the first time in 30 years.
  • My people are now preparing hot meals for the military who are securing the streets after the flee for ALL police persons.
  • My Egypt will NOT be Afghanistan and WILL NOT be ruled by Taliban. This is what Mubarak has been wrongly telling the west and the U.S.; that he is a fence against Islamists and extremists.  My Ph.D. dissertation (from the University of Utah) talks about his issue.

My message to the free American people

Please step forward and stand to support your fellows in humanity and:

  1. Write and inform your House representatives and senators about the issue and ask them to support my people’s case and fair demands.
  2. Write to the editor of your paper.
  3. Educate your students and colleagues about the justice fairness of the Egyptian case.

Thank you

Tax Cuts Do Not Increase Labor Supply

A central tenet of U.S. “conservative” and Republican economic policy since at least the election of Reagan in 1980 is that tax cuts cause people to work more and longer hours. This is part of the so-called “supply side economics”.  The implication is that the longer hours and more labor supply will then raise the dollars of taxes collected despite the rates being lower, the so-called Laffer Curve effect.

The argument is overly simplistic and fallacious on it’s face. The theoretical support is the one-liner theory idea that “people respond to incentives, take-home money is an incentive to work, and therefore increased take-home pay causes people to work more”. It’s just a version of the retailer’s “cut the price and make it up on volume” logic.  And as such it is dependent on the elasticity of the responses – remember when the response is inelastic, as in “I have to work to live”, the volume won’t be made up.  Despite their being no strong empirical evidence of tax cuts helping raise more tax dollars or motivate widespread increased labor supply at least in the range of real-world tax rates, the concept persists – another Zombie Economics idea.

Dillow adds more to the evidence pile:

Taxes and labour supply: more evidence

Do tax cuts boost labour supply and hence tax revenues? Here’s some evidence that they don’t. Pierre Cahuc and Stephane Carcillo report on an experiment* in France:

The detaxation of overtime hours introduced in October 2007 was intended to allow individuals in France to work more so as to earn more. The evaluation conducted in this article indicates that the detaxation of overtime hours has not, in fact, had any significant impact on hours worked…
Detaxation is a measure costly for the public purse, without any ascertained impact on hours worked.

We can put this alongside the evidence we have for footballers and New York cabbies, which suggests that we are on the positive side of the Laffer curve, where tax cuts do not increase revenues. It’s also consistent with the – very tentative – evidence we have from UK tax receipts this year, which suggests that the introduction of the 50p tax rate has not (yet) reduced revenues.
Now, this is not to deny that Laffer curves exist. No doubt, there is a point at which higher taxes would be counter-productive and tax cuts would pay for themselves. And I’ll concede that it’s possible that the 50p tax rate will, eventually, have adverse effects.
But where is the hard evidence that, at tax rates around current levels, there are such effects? Do the glibertarians  have anything more than prejudice, half a theory, and the post hoc ergo propter hoc fallacy?

Readers and students should note: There is no conflict between these claims and the Keynesian macro-economic policy assertion that tax cuts can stimulate the economy.  The Keynesian policy mechanism works differently.  It asserts that tax  cuts work to widen the budget deficit.  The households spend part of the tax cut while the government continues to maintain it’s other spending. Therefore Aggregate Demand, total spending, in the economy increases. As the spending is received by firms who then pay for labor & resources in the circular flow, the increased spending has a multiplied effect.  The Laffer curve concept is different. It asserts a direct greater willingess-to-work labor supply response.